Question 1

A requirement of implementing a pay for performance system is to eliminate nonmonetary rewards at an organization.

Accepted Answer

Implementing a pay for performance system does not require eliminating nonmonetary rewards. Nonmonetary rewards can still be used to recognize and motivate employees, but they should not take the place of salary increases or bonuses tied to performance.

Question 2

How is the base pay set when merit pay plans are used?

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Question 3

By paying for performance, a company signals that it is interested in employees who want to be paid for good performance.

Accepted Answer

By offering pay for performance, a company is indicating to employees that they value and reward high quality work. This can attract workers who are motivated to do their best and be rewarded accordingly.

Question 4

When performance measures are deficient or contaminated, employees are less likely to feel that their efforts directly influence the performance measures used to determine performance-based pay.

Accepted Answer

When performance measures are deficient or contaminated, employees may perceive that the measures are unfair or inaccurate, which can reduce their motivation to improve their performance and earn performance-based pay.

Question 5

Cash rewards that are tied to some aspect of performance and paid in lump sums rather than as raises are known as merit pay.

Accepted Answer

Merit pay refers to raises or ongoing salary increases based on performance, not lump-sum payments. Lump-sum payments tied to performance are typically referred to as bonuses.

Question 6

What are two disadvantages of merit pay?

Accepted Answer

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Question 7

Comment on the following statement: The expected outcome of a properly administered performance-based pay system is that it will help the organization achieve its strategic objectives by attracting, retaining, motivating and rewarding employees.

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Question 8

When a reward is paid in a lump sum, it seems to have more impact than when it is paid out as small additions to employees' weekly or monthly paychecks.

Accepted Answer

This statement is true. When a reward is paid in a lump sum, employees are more likely to notice the impact of the reward and feel motivated to work towards achieving similar rewards in the future. On the other hand, when rewards are paid out in small increments, employees may not notice the impact as much and the motivation to work towards earning the reward may not be as strong.

Question 9

The general pattern is that proportionately less incentive pay is used for employees higher in the hierarchy.

Accepted Answer

The general pattern is that proportionately more incentive pay is used for employees higher in the hierarchy, as their decisions and performance have a larger impact on the organization's success.

Question 10

List four types of performance-based pay.

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Question 11

In what four domains do proponents of balanced scorecards argue that organizations should monitor their performance?

Accepted Answer

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Question 12

What are the three levels of aggregation for performance-based pay?

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Question 13

What criticism can be leveled against merit pay?

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Question 14

Differentiate between merit pay and incentive pay.

Accepted Answer

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Question 15

Performance-based systems can only use monetary rewards as incentives.

Accepted Answer

While monetary rewards are a common incentive in performance-based systems, they are not the only option. Non-monetary incentives such as recognition, promotions, flexible schedules, and training and development opportunities can also be effective motivators for employees.

Question 16

What three factors have reduced the use of stock options as incentives?

Accepted Answer

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Question 17

Incentive pay pegs base pay near the market average and employees earn additional monetary compensation for excellent performance.

Accepted Answer

Incentive pay is designed to reward employees for excellent performance beyond their base pay. The base pay is typically set at or near the market average, and additional monetary compensation is earned based on individual or team achievements.

Question 18

In terms of labor costs, it is advantageous for a firm to tie added compensation to performance and maintain stable base pay rates.

Accepted Answer

Tying added compensation to performance provides an incentive for employees to work harder and increase productivity, which can ultimately benefit the firm. Maintaining stable base pay rates ensures budget stability and prevents unexpected fluctuations in labor costs.

Question 19

When the strategic goal is growth, it is reasonable to reward employees for achieving growth targets.

Accepted Answer

Rewarding employees for achieving growth targets is a common practice when the strategic goal is growth. This can incentivize employees to work harder and smarter to achieve the growth targets set by the organization. However, it is important to ensure that the growth targets set are realistic and achievable, and that the reward structure is fair and transparent.

Question 20

With incentive pay, there is substantial downside risk for employees and there is less upside potential.

Accepted Answer

With incentive pay, there is typically more upside potential for employees as they can earn additional compensation based on meeting or exceeding performance goals. However, there is also potential downside risk if the employee does not meet performance expectations and may not receive the full incentive payout.

Quiz 11: Using Performance-Based Pay to Achieve Strategic Objectives